• Allianz saw a 1Q21 net profit of RM63.3m (-20.4% yoy; -56% qoq), in-line with our estimates, but below consensus by circa 8%

• The headline results were largely due to weaker performance at the Life unit arising from fair-value losses (due to fluctuations in rates). However, on a normalized basis, core net profit is estimated to rise by 22% yoy

• Maintain BUY with 12-month Price Target of RM16.40 unchanged. Prospects continue to be underpinned its partnership with Pos Malaysia (in General segment) and its strong agency force in the Life segment

A weak 1Q21 could be temporal due to fair-value losses at the Life unit

Allianz saw a sharp pullback in 1Q21 net profit (-20.4% yoy and -56% qoq), largely due to a weaker Life unit, attributable to fair-value losses arising from the reversal of the 10-year MGS yield (up 70bps, from 2.6% as at Dec20 to 3.3% as at Mar21). Hence, Allianz’s 1Q21 PBT was mostly driven by the General unit, which generated RM92.6m while the Life unit and holding company saw losses of RM20m and RM5m respectively. However, on a normalized basis, we estimate that 1Q21 net profit grew by 22% yoy. On a more positive note, we saw recovery in the gross written premium (GWP), with the General unit up 7% yoy and 17.5% qoq, underpinned by the motor class (62% of General’s GWP) and fire (accounting for 17.6% of GWP). In the Life segment, recurring premium products (77.8% of GWP) were up 12.9% yoy while single premium products (22.2% of GWP) rose 2.2% yoy in 1Q21. At the group level, the overall net claims and reserve ratio stood at 54.7% vs. 32.9% in 1Q20 and 79% in 4Q20. Allianz also saw more favourable net investment results and realized gains in 1Q21 (>100% yoy) though these were offset by fair-value losses of RM414m.

Premium growth expected to recover in 2021, barring a stricter MCO 3.0

Barring a potentially stricter MCO 3.0, we believe that prospects in the General segment will be driven by a recovery in auto sales and through the Pos Malaysia tie up while annualized new premium growth in the Life segment will be led by its strong agency force and banca-partnership.

Maintain BUY With PT Unchanged at RM16.40

We reiterate our BUY rating on the stock, with an unchanged Price Target of RM16.40, based on these key assumptions: a 2022E P/BV target of 1.55x for its General operations and 2022E P/EV target of 1x for its Life operations. Our 2021E- 23E forecasts remain unchanged, barring any potential revisions in our macro assumptions and implementation of a stricter and more prolonged MCO. On GWP, we are forecasting a 5% yoy growth for 2021-23E. Downside risks: i) high inflation costs; ii) theft and fraud cases; and iii) more competitive rates from peers.

Source: Affin Hwang Research - 19 May 2021